Amazon is entering an Australian retail market already in turmoil

An Amazon employee at a warehouse in Paris. Eric Piermont/AFP/Getty Images

Retailing has been doing it tough lately in Australia with new digital players eating into market share and by fickle consumer sentiment.

The Boxing Day and New Year sales didn’t go to plan and now Amazon, know for moving into new markets and forcing the big players to cut their margins to meet the US online player’s prices, is moving into Australia in a big way.

Nationally, retail sales have been disappointing, with the annual pace slowing to 2.7%, according to the latest official numbers.

And a string of players in the retail sector, under pressure from online trading and emerging competitors, have been going into administration.

They include Payless Shoes, Pumpkin Patch, Howards Storage World, and Dick Smith stores, which closed last year.

A Dick Smith store ahead of its final closure. Saeed Khan/AFP/Getty Images

In February fashion labels Marcs and David Lawrence went in to voluntary administration, citing deteriorating sales, general market conditions and poor cash flow.

Retail landlords as well as the retailers themselves are at risk from Amazon’s physical arrival, according to analysis by Morgan Stanley.

“Digital competition is not new to Australia, and local retailers have mostly adapted to varying degrees of success to new digital entrants like Kogan,” Morgan Stanley says in a note to clients.

“However, we have only seen the proverbial shadow in the shallows of the real digital monster, Amazon.

“While Amazon might take time to build-up momentum in this country, it hangs like the Sword of Damocles over corporate Australia.”

Australian companies will need to invest and reinvent their business models and processes to cope with the sheer avalanche of consumer choice and ultra convenient fulfillment, such as one-hour delivery, that Amazon will deliver.

“Cyclical forces are hurting retailers today, but the secular threat from Amazon is a far more worrying trend,” says Morgan Stanley.

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